Increased Density

Shales Cana Woodford Shale (AKA Anadarko Woodford)
1

I’m new to all of this and am finding it pretty confusing even with the wealth of information available on this site.

My 93-year-old mom owns mineral rights in Canadian County, specifically “an undivided 1/3 interest in an undivided 5/8 of lots 3 and 4 and the E 1/2 of the SW 1/4 of Section 7, Township 12 North, Range 9 West”.

She has been receiving a small income from wells that I believe were drilled in the 70’s. Marathon filed for increased density and the order was approved on Jan 10, 2012. The cause number is 201105379 and the order number is 592848.

I don’t have the expertise necessary to understand the language of the order except that they have one year to begin drilling somewhere. Is there anywhere I can go to find out where the well (or wells) are going to be drilled? Also, there is language in the order concerning whether the well is completed as an oil well or a gas well.

My mom asked me to find out what I can so if anyone can direct me to any material that will help me educate myself on our specific situation I would be grateful. I’d like to be able to tell her if this is a good thing, a bad thing, a potential big deal, or nothing much. I originally told her we would just “wait and see what happens” to which she replied “I’m 93…find out what you can.”

Regards

Mitch Williams

2

If you run the numbers, ie 1/3 of 5/8 = .2081 or about 21% interest in those two lots. If the lease is 3/16, which seems to be common, then you have .2081 * .1875 or about .0375 interest x the acreage in the two lots/640 acres.

Let’s say that each lot is 2 acres, then 4/640 = .00625 * .0375 = .000234. This would be her interest percentage in all the products drilled each month. If they produce one million dollars a month in total products after state, county, and transportation costs are deducted, then she will get $234 a month, if my math is correct.

Do you know what the lot acreage is?

3

That’s pretty funny…I don’t know where you came up with the million dollar figure but your $234 per month is probably the average she has gotten since the 1970s. You’re good!

I can’t find the lot size in any of the legal descriptions I have. My great grandfather got 160 acres in the land run and the 1/3 portion came about because my mom had two brothers. The farm was sold in the early eighties but the minerals retained.

4

Hello Mitch, yes there is a wealth of information here and it takes all of us to figure out some of the actions of the OCC. A couple of people following this thread can extract the info and have a discussion about it.

In a nutshell the OCC has granted Marathon the permission to drill more than one well in a unit, usually 640 acres. However in your area there are units being formed that encompass 1280 acres. Other operators have been allowed to drill more wells in a unit and I don’t know of any operator that has six wells in a given unit yet. Six wells per unit is the number that fits the recoverable reserves as of this point in the exploration and development of the Woodford shale. Six wells may already be drilled in a unit or two and the reports have not been filed yet.

A well can take three to five months to drill, frac, complete and get a pipeline hookup. Your mom will have a mineral ownership in that well based on her % ownership of the 640 acre unit or of the 1280 acre if that is the case. She will have the same ownership of the next five wells if they are drilled in her unit. The operators can and do withhold payments to mineral owners for six months. This is State law.

You indicate that she has some small income from other wells. Since her interest would be considered Held By Production (HBP) from those wells, did she sign another lease with Marathon? It could be that the company that owns the producing wells made a deal with Marathon and no lease bonus would be paid in that case.

As far as timing is concerned, if Marathon started the first well tomorrow it could be a year before your Mom got the first royalties from the first well. They could drill the wells rapidly or not. But it could be a stream of varying income for the next 10 years at least.

5

1/3 of 160 acres sounds like 53 1/3 acres.

6

Don

She currently has a lease with Marathon and gets monthly checks, so I think you are right about no lease bonus forthcoming. Also, there are numerous references to 640 acre units in all of her paperwork so I don’t think her unit is 1280. She gets checks from Marathon, Chaparral, and Linn. I have the original lease from Sun from 1971 and it has been bought and sold over the years.

You are correct Daniel. She has 1/3 of 160 acres.

Thanks for the information guys. I still don’t know much but I know more than I did. I live in Texas but I might take a trip to the old farm and see for myself if any drilling is going on. I think I remember how to get there. I-40 runs right through it near Calumet. Haven’t been there since I was a kid and my uncles ran cattle on it. I’m just glad they kept the minerals when they sold the farm. Might get some real money off of it someday.

7

You could look at the property with GOOGLE EARTH.

If she has 53+ acres, just change 4/640 = .00625 * .0375 = .000234 to 53/640= .0828 * .0375 = .00105, which would be $1,050 month, if production was $1 million for the month.

8

Tried Google Earth. Imagery date is September 2010. Good idea though.

9

Well, there’s a bit of speculation in this thread. In Canadian County, in general, a lot is often averages about 40 acres. It occurs often because of rivers such as the Canadian River. Interestingly, landowners do NOT own land on the River, and mineral owners do NOT own minerals under the river. That produces some sections which have a little less than 640 acres in total. There are also some sections with MORE than 640 acres. I happen to know, since I own farms there, that the Canadian River does not run through your place…but never mind, there is something irregular about that section.

Sounds like your grandfather owned a 5/8 mineral interest in approximately 160 acres, and your mother inherited a third.

Linn Energy seems to have several vertical wells in the section with 640 acre spacing. The leases seem recent enough that you probably got 3/16 royalty, but you would need to check the oil and gas lease that your grandparents signed. If you could pass on the “decimal interest” from her Linn Energy checkstub, I could confirm the number of acres involved.

In recent history, Marathon completed a Woodford well in this section (with 640 acre spacing) in May 2009. This was one of the early Woodford wells, and had only a half mile lateral. She should be getting a check from Marathon. The well is the Calhoon 1-7H, and it came in producing a 1001 mcf/day in gas with pressure at 1400# on an 18/64th choke. Recent production shows that it has made about 350 mcf/day. This is not bad for one of the early wells. It makes in total about $900 per day, which is only a little different than a million dollars a day (!). On a 3/16 lease, based on the ownership acreages you passed on, that would be about $250/month. These are just rough estimates. In addition, there would be income from the “liquids” produced, and that can be significant.

However, the future is bright. Devon is doing a lot of “infill drilling” only a couple of miles to the north. If you drive out there, you will see many rigs lined up in a row. What this means generally is that they will be drilling “up to” 8 additional wells per section here in the core of the Woodford Shale. I did not look at the particular order for your section, but that generally is what is going on. In addition, you can bet they will be doing at least a full mile lateral with a much improved frac job now, and so your expectations should be higher.

I own mineral rights in the section adjoining your mother’s section, and in a few other sections where I have farms a little farther north. If you have any more questions, let me know. I have tried to keep up with the activity out there pretty carefully.

10

JW

Thanks for the detailed information. I have detailed information for Marathon, but only IRS 1099 forms for Chaparral and Linn. The “distribution decimal” from the Marathon check stubs is .00651861. Marathon shows the Calhoon 1-7H, just as you said. I don’t know where the other wells are but I believe the Calhoon 1-7H is actually on what used to be her farm. The farm is North of the Canadian River.

As far as royalties go, Marathon paid about $7800 last year. Linn paid about $1400 and Chaparral paid about $400. Roughly $10,000 total for the year. I would say that last year was better than average but she has been collecting off of those wells for forty years and like most depression era (and dustbowl) people she has managed to save it all. Gotta love her!

Thanks again for all the information. I’ve gotten more information in one afternoon on this board than I have in months of searching on the internet.

11

Your decimal of 0.00651861 represents 22.25 acres out of a 640 acre unit based on a 3/16 royalty.

Alternately, it represents 33.375 acres based on a 1/8 royalty.

From the deed, 1/3 interest in 5/8 of 160 acres is 33.333 acres, which supports the 1/8 royalty choice.

Therefore, I would be pretty confident that the original lease was a 1/8 lease signed many years ago, and that your mother owns a little over 33 net mineral acres. This lease was HBP (held by production) through the years.

(Many recent leases are anywhere from 3/16 to 1/4 royalty.)

The income you report is consistent with this acreage.

I looked up the cause # you refer to. The resulting ORDER is #592848, approved Dec 13, 2011.

Marathon, at this point, is applying for permission to drill one additional well on a 160 acre spacing as a followup to the Calhoon 1-7H. I presume that would mean they eventually have plans for a total of four Woodford wells on this section.

Because the bottom has recently fallen out of the natural gas market, these plans may or may not be on hold for the time being. There is no current “intent to drill” filed on the section. But I would say that at some point in the future there is hope for some more good production from the Woodford.

12

Great! That’s the information I was looking for. Thanks to everyone for your time.

13

JW

Do you know the “INTENT TO DRILL” OCC form number?

How said $1 million dollars a day? I said $1 million dollars a month.

14

“Do you know the “INTENT TO DRILL” OCC form number?”

No, I don’t.

“How said $1 million dollars a day? I said $1 million dollars a month.”

I’d settle for a million over 20 years.

15

Intent to drill is OCC form number 1000.

16

Just for real point of reference-

From all that I have seen for posted Woodford shale production, a middle of the road well should make 2.5 million a day in gas and 75 barrels a day in liquids. However, shale gas wells decline rapidly and the production after the first year could be down 50% from the initial rate.

The initial rate of 2.5 million at $2.75 per thousand will deliver $6,875 per day or $206,250 per month.

The liquids at 75 barrels a day and $85 per barrel will deliver $6,375 per day or $191,250 per month.

Total: $397,500 a month. You can take your Mom’s decimal interest in the Marathon lease (as calculated above) and see what the monthly share might be for one well for her based on a middle of the road well to start with. The production will decline, make no mistake about that.

For the larger picture some estimates have to be made and assumptions made also.

Assuming six wells in the 640-acre unit (this may or may not happen).

Assume each well produces 5 BCF of gas with the liquids converted to gas for calculation purposes.

Over the 12 to 25 year life of the six wells that would generate $82,500,000 pricing the gas at $2.75 per thousand for the 30 BCF produced. This is a wild number because of the time span. However, there is a glut of gas in the U.S. now and will continue to be in ample supply for years to come based on the success of the shale gas drilling already done and that to be done down the road.

All of these numbers are just estimates and the real production, the number of wells in the 640, the prices and the rates of production will not be known for many years. However, it is an upbeat story with many sharing in whatever good fortune becomes of it.

I own a few mineral acres in Grady County and am a Geologist/Geophysicist actively exploring in south Texas and graduated from OU in 1958. Study of the Anadarko Basin was my backyard when I was at OU.

17

Maybe the gas pricing situation will get better when Cheniere gets their LNG terminal built. We can ship the gas over to Europe where they pay triple what we get here.

Once again, thanks for all the help and the time involved. I can’t believe the wealth of knowledge on this board.

18

JW

Any activity closer to our respective sections? Still haven’t heard anything.

Mitch

JW Anderson said:

Well, there’s a bit of speculation in this thread. In Canadian County, in general, a lot is often averages about 40 acres. It occurs often because of rivers such as the Canadian River. Interestingly, landowners do NOT own land on the River, and mineral owners do NOT own minerals under the river. That produces some sections which have a little less than 640 acres in total. There are also some sections with MORE than 640 acres. I happen to know, since I own farms there, that the Canadian River does not run through your place…but never mind, there is something irregular about that section.

Sounds like your grandfather owned a 5/8 mineral interest in approximately 160 acres, and your mother inherited a third.

Linn Energy seems to have several vertical wells in the section with 640 acre spacing. The leases seem recent enough that you probably got 3/16 royalty, but you would need to check the oil and gas lease that your grandparents signed. If you could pass on the “decimal interest” from her Linn Energy checkstub, I could confirm the number of acres involved.

In recent history, Marathon completed a Woodford well in this section (with 640 acre spacing) in May 2009. This was one of the early Woodford wells, and had only a half mile lateral. She should be getting a check from Marathon, The well is the Calhoon 1-7H, and it came in producing a 1001 mcf/day in gas with pressure at 1400# on an 18/64th choke. Recent production shows that it has made about 350 mcf/day. This is not bad for one of the early wells. It makes in total about $900 per day, which is only a little different than a million dollars a day (!). On a 3/16 lease, based on the ownership acreages you passed on, that would be about $250/month. These are just rough estimates. In addition, there would be income from the “liquids” produced, and that can be significant.

However, the future is bright. Devon is doing a lot of “infill drilling” only a couple of miles to the north. If you drive out there, you will see many rigs lined up in a row. What this means generally is that they will be drilling “up to” 8 additional wells per section here in the core of the Woodford Shale. I did not look at the particular order for your section, but that generally is what is going on. In addition, you can bet they will be doing at least a full mile lateral with a much improved frac job now, and so your expectations should be higher.

I own mineral rights in the section adjoining your mother’s section, and in a few other sections where I have farms a little farther north. If you have any more questions, let me know. I have tried to keep up with the activity out there pretty carefully.

19

There is a bit of activity in the general area. A lot of infill drilling is going on 2 to 3 miles to the North.

However, no intent to drill has been filed on your Section 7-12N-9W. Devon and Cimarex are the major players in the area, and Marathon has a relatively minor stakehold.

20

Thanks for checking for me. Someday I’ll figure out how to navigate the OCC website and will be able to figure this out for myself. I appreciate your time.